Lucara Diamond to raise up to $200m debt for Karowe underground expansion

LUCARA Diamond, a Toronto-listed mining firm, is to finance $150m to $200m of its proposed $514m Karowe underground extension with borrowings which it hopes to secure in the second half of this year.

“We have had continual discussions with a broad range of lenders. There is a high level of interest with the lending group,” said Eira Thomas, CEO of Lucara Diamond in a conference call on Tuesday.

Thomas said the diamond market had gained further traction in the first quarter, a development that was helping to generate lender interest in the Karowe expansion. “The diamond industry begins 2021 with a healthier supply-demand balance than it has had at any stage in the past five years,” she said.

Revenue for the current year has been guided to $180m to $210m (2020:$125.3m). Sales have been forecast at 350,000 to 390,000 carats (373,748 carats; 2019:411,732 carats).

The firm’s 2020 financial year was difficult.

Lucara reported 0.01 cent/share basic full year earnings loss (+0.02/share) owing to the impact of Covid-19 on diamond sales. Lucara’s stones fetched an average price of $335 per carat during the period compared to $468/carat in 2019.

On a per share basis, cash flow from operations fell to $0.02 in 2020 compared to $0.05 in the previous financial year. Cash flow was also impacted by the nature of a sales agreement with HB Antwerp, a diamond trader and manufacturer, which pays Lucara an upfront fee for high quality diamonds of 10.8+ carats minus costs.

A ‘true-up’ payment reflective of the realised sales price of the goods is paid at a later stage. Zara Bolt, CFO of Lucara Diamond, said in a conference call that the sales agreement with HB Antwerp was “inherently conservative” as the trader took downside risk as part of the deal structure.

The company was considering whether to renew the agreement with HB Group in 2021 which had been signed in the aftermath of Covid-19 being declared a pandemic and as the outlook for the diamond market turned significantly downwards.

The balance of the cost of building the Karowe underground extension will be sourced through cash flow. About $105m in capital expenditure would be spent by Lucara on the Karowe expansion this year.

The Karowe mine, in Botswana, has yielded some of the world’s most spectacular diamonds. Since 2014, 19 diamonds in excess of 300 carats have been recovered, including two larger than 1,000 carats: the 1,758-carat ‘Sewelô’ in 2019, and the 1,109-carat ‘Lesedi La Rona’, recovered in 2015.

CLARA

Sales of diamonds through Lucara’s bespoke digital platform, Clara, were “a silver lining” of the Covid-19 pandemic, said Thomas who forecast sales through the platform may perform better than expected in the firm’s initial five-year forecast of $1bn to $1.5bn – roughly 10% of the world diamond market.

“Clara doesn’t just digitalise the existing diamond sales process, it completely transforms it,” she Thomas. Supply of diamonds from Lucara’s Karowe operation – exclusively stones of less than 10.8 carats – were now insufficient to meet demand, she said.

As a result, the company was hoping to attract more third party sellers this year. “Based on early feedback in 2020, we are really encouraged,” Thomas said. “We can go quite quickly. The technology is completely scalable.”

There were 78 buyers operating on the platform currently.